“If the stock markets crash again, I could lose all my money!”
After talking with a financial advisor about moving their money from their 401(k), to an IRA, a relative of mine aged 68 said that she felt the same way. She called me first to check if it was a good idea.
My immediate reaction was: Your concern about losing all is wrong, wrong and wrong! It made me realize how crucial the Obama administration’s Department of Labor, DOL, “fiduciary Rule” is. I also realized how detrimental its delay and possible watering down by Trump could be.
First, let’s talk about why she was so wrong.
Vanguard’s Target Date funds were used to invest her 401(k), which has more than half its assets in bonds and stocks. It is unlikely that her savings would be affected by the stock market crash. Her 401(k), which she has, might see a drop of up to 25%. However, it wouldn’t mean that she would lose all her savings.
“Don’t let fear drive your investment decisions,” I told her.
An annuity purchase might not be the best decision for her given her circumstances.
The fiduciary rule is also an important factor.
Fiduciary advisers would spend time learning about the client before making recommendations to ensure that the advice is in the client’s best interest. The DOL’s fiduciary Rule would require that advisers act in the client’s best interests.
The rule was originally scheduled to go into effect earlier in the year. The DOL announced recently that it will delay its effective date to mid-2019 due to pressure from financial companies and a request by the Trump administration.
As my relative’s story shows, retirement planning decisions are more complicated for older workers as they approach retirement. This is one of the main reasons Obama instituted the fiduciary rule: to protect retirement savers against unscrupulous and unskilled financial advisors. Some of them are just salespeople.
What can retirement savers do? Ask potential advisors one question: “Will your fiduciary act in my best interest?”
If you get a “Yes”, it is worth asking more questions about their services. For example, how much they are paid and how their training is for creating retirement income. If they answer “No”, then you should politely end the conversation. It’s as easy as that.
You can find trusted advisers and financial institutions who will gladly act on your behalf as fiduciaries. Financial Engines, McLean Asset Management, Financial Engines and United Income are just a few examples. It is your job to find these advisors and avoid those that don’t work in your best interests. It’s the free-market in action.
It is important to understand the fiduciary rule in retirement planning and how it can affect your savings. It’s your responsibility as an investor to make your money work hard for you. You are the best person in today’s world to act in your best interests.
